Jan 7 (Reuters) - Following is the full text of the minutes
from the Czech central bank (CNB) governing board's December 22
monetary policy meeting, released on Friday.
Present at the meeting: Miroslav Singer (Governor), Mojmir
Hampl (Vice-Governor), Vladimir Tomsik (Vice-Governor), Robert
Holman (Chief Executive Director), Kamil Janacek (Chief
Executive Director), Pavel Rezabek (Chief Executive Director),
Eva Zamrazilova (Chief Executive Director).
The meeting opened with a presentation of the eighth
situation report assessing the new information and its effect on
the fulfilment of the risks of the inflation forecast contained
in the seventh situation report. The new situation report
assessed the risks in relation to the forecast overall as being
balanced. Inflation in November had been just 0.1 percentage
point lower than forecasted; food prices had recorded less
growth and adjusted inflation excluding fuels and regulated
price inflation had also been slightly lower. By contrast,
annual growth in fuel prices had been higher than forecasted.
New national accounts data showed a continuing acceleration in
annual GDP growth, which had reached 2.8 percent in third
quarter and was 0.1 percentage point higher than forecasted.
Gross capital formation, driven by investment in inventories and
photovoltaic power stations, had made a larger-than-forecasted
contribution to GDP growth, whereas the contribution of net
exports had been negative. Rising world commodity prices and the
currently weaker exchange rate were inflationary risks of the
forecast. Lower-than-expected wage growth was acting in the
anti-inflationary direction.
In the discussion that followed the presentation of the
situation report, the prevailing opinion was that the risks of
the inflation forecast were balanced. The majority of the board
members agreed that the appropriate monetary policy response was
to leave rates at the current level.
In connection with the stable outlook, it was said
repeatedly that there were uncertainties in several areas. The
external situation was a source of increased uncertainty,
especially in the context of the continuing debt crisis in
Europe and the impacts of necessary fiscal consolidation. In the
discussion, some of the board members stated that the
uncertainties were so great that all possible monetary policy
responses remained open at the forecast horizon.
In the discussion of the risks of the inflation forecast,
some of the board members drew attention to growing partial
upside risks to inflation emerging in individual price areas. It
was said that cost-push inflation pressures might arise despite
low GDP growth. Growth in world commodity prices driven by
demand in new markets, especially in Asia, was repeatedly
identified as an upside risk to inflation. However, the opinion
was also expressed that higher commodity prices would be
suppressed by the stronger exchange rate expected in the
forecast. It was said in the discussion that both current
inflation and forecasted inflation were roughly at the inflation
target of 2 percent and that current monetary-policy relevant
inflation was low. It was said that evolution of the money
supply and credit remained moderate and was not signalling
inflation pressures. The low wage growth in third quarter was a
downside risk to inflation.
The Board discussed in depth the economic growth outlook and
its implications for the inflation forecast. The opinion was
repeatedly expressed that the GDP growth forecast of 1.2 percent
for 2011 was too pessimistic. In this regard, it was said that
even though the uncertainty associated with expected GDP growth
was high, there was spare capacity in the economy and the output
gap was significantly negative. The inflation pressures were
therefore very subdued. However, it was also said in the
discussion that the output gap estimates were also affected by
data from the period preceding the global crisis and that these
data might have reflected an overheating of the domestic economy
rather than its equilibrium state. The economy might thus
currently be closer to its equilibrium state and might even be
above it at the forecast horizon. This, coupled with rising
world commodity prices and a weaker exchange rate, might pose an
upside risk to inflation. It was also said that the year-end
retail sales figures would be a significant indicator of the
future household consumption trend and of a potential renewal of
inflation pressures.
An important condition for future economic growth is the
outlook for economic activity abroad. It was said that the
growth of the German economy might be higher than expected
because German exports were going mainly to new markets,
especially in Asia. This would represent an inflationary risk of
the inflation forecast. The opinion was repeatedly expressed
that the uncertainty associated with public finance in the euro
area connected with the continuing debt crisis might represent a
downside risk to inflation via lower external growth. It was
also said that the stable outlook for the domestic economy was
reflected in lower government debt financing costs compared to
other countries and that this was an argument for stable rates.
At the close of the meeting the Board decided by a majority
vote to leave the two-week repo rate unchanged at 0.75 percent.
Six members voted in favour of this decision: Governor Singer,
Vice-Governor Hampl, Vice-Governor Tomsik, Chief Executive
Director Holman, Chief Executive Director Janacek and Chief
Executive Director Rezabek. Chief Executive Director Zamrazilova
voted for increasing rates by 0.25 percentage point.
(Reporting by Mirka Krufova)
